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Thursday, 19 December 2013

Will FDI rekindle foreign investors’ interest in India once again?

It is universally accepted that FDIs increase the employment opportunities and wealth in a country. They provide new technology and capital for investment, which may be helpful for the growth of that country’s economy. FDIs claim several other opportunities that include direct benefit to farmers, reduction in food inflation, and drop in wastage of food.

Recent analysis shows that with the use of FDI, local productivity growth increases in developing countries. In the year 2010-12 a UNCTAD Survey stated that India was positioned as the second most important FDI destination after China. Latest FDI developments show us that India attracted FDI worth US$ 22.42 billion, during the year 2012-13. Sectors such as tourism, pharmaceuticals, telecommunication, services, chemicals and construction were recorded with the highest FDI. A contributor to Indian FDI, Cyprus joined hands and signed Double Taxation Avoidance Agreement (DTAA) with India to benefit the investors in terms of protection of wealth, finance, profits with low tax, and other purposes. With statistics showing that nearly 49% FDI is used by companies such as HDFC Bank Ltd., Reliance Industries Ltd., and Hindustan Unilever Ltd. of their paid up capital. Likewise, 30-40% foreign investment is been used by companies like Balaji, Hero Honda, Asian Paints India Ltd., Ranbaxy Laboratories Ltd., Infotech Enterprises Ltd. etc of their paid up capital.

If we conclude from the past recent years, we see that the service sector has made highest contribution to the Indian economy. Annually, it has been increasing 10 percent with 55.2 per cent in Gross Domestic Product. India, if internationally compared, with other developed countries in terms of services sector, has done well among top 12 countries with highest overall GDP. The sectors like computer hardware, software and telecommunication are also growing enormously. However, there were several factors for FDI Inflows in the economy which includes development of software technology parks, regulatory reforms by the government of India, growth of Indian market and availability of qualified manpower.

But the truth is that we are deficient in many parameters due to the lack of political and governance issues. Although, we need FDI to ensure that our basic needs are met but at this stage, competition will only benefit foreign investors who can invest a lot of their money into India (because of low cost of rupee). The unempowered public is been weakened by so called “welfare program NREGA”. Hence, the selected empowered classes will keep climbing higher while the others will tend to fall down.

A researcher conducted in the year 2007-08 in Michigan State University claim that Wal-Mart (food retailer in Central America) pays its workers lower than the outer traditional market and creates concentrated pressure on the labours. The advantage of the globalization of food retailing is only beneficial to the well-financed and most equipped producers because the small scale producers who are short of infrastructure, technology and financial support cannot abide by the retailer’s standards and hence, are not profited by these techniques. It is quite sure that nothing will be achieved by India unless political environment and fundamentals of micro-economics improve. As Indian economy will grow, it would also generate more jobs, but it is not important that capital global retail chains would generate greater jobs as compared to unorganised sector.

From the above surveys and data, we can conclude that India has not been attracted much by the FDI investment in the past decades. Moreover, FDI would bring a lot of other problems such as suppressed wages. The in-depth competition among foreign investors will lead to better offerings for consumers and improved food chain supplies. Thus, opening the doors for FDI in a multi-brand market is both, a challenge and an opportunity.